Business Technology

Saturday 17 August 2019

Even banks can't stop the digital technology surge

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Central to Wirecard's business model are transactions-based fees for the use of services in electronic payment processes. Stock image
Central to Wirecard's business model are transactions-based fees for the use of services in electronic payment processes. Stock image

John Lynch

The world's historians, who worked hard this year to mark the 500th anniversary of the start of the Reformation, probably found themselves spending more time explaining the critical importance of the newly developed printing press in the 16th century than they did on Martin Luther's revolutionary theses.

The German monk's ideas may have been 'hot' stuff in the 1520s, but it was the technology used to spread his message that played the major part in that extraordinary moment in history. Half a millennium later, technology remains the big story - only now the stakes are so much higher and its pace of change defies any known comparison.

The company we are examining today underscores this point in an acute way.

It is a high-tech company that has taken on and disrupted that most solid of businesses, the banks.

It is a concern called Wirecard AG - a German internet bank. Central to Wirecard's business model are transactions-based fees for the use of services in electronic payment processes. The young German group is a global driver of innovation in the digitalisation of payments using the internet. It supports companies in accepting electronic payments from online, mobile or point of sale.

Its global platform offers a range of international payments and acceptances including solutions in preventing fraud. The company offers everything for the cashless payment system, including banking. Its unique selling point is its innovative technology and it possesses a full German banking licence, a UK e-money licence, and issuing licences for Visa, Mastercard, Diners Club and Amex. It is also positioned to develop solutions for customers in retail services, transport, and banking and has a customer portfolio of 33,000 large and medium-size companies and 170,000 small ones.

Formed in 1999 in Aschheim near Munich, its early years were difficult, but by 2004 it had recovered sufficiently to be listed on the German TecDax exchange. Over the past few years the company has pushed forward with its entry into North America, India, Brazil, Mexico, and the Asia- Pacific region where it has a presence in 11 countries. Today, Wirecard has a market value of €11bn, and 4,200 employees - 40pc in Europe (Germany 30pc) and more than 50pc in Asia Pacific.

Wirecard has three segments, all interconnected. These are payment processing, acquiring and issuing and call centres.

Its largest business is payment processing, with 70pc of total revenues.

Last year, revenues were up a quarter on the previous year and profits rose by a third. The acquiring and issuing division helps retailers settle credit card sales online or at terminals. The company issues various card products such as credit, debit and prepaid cards.

It can issue these in the form of a physical card or a virtual card for e-commerce. This business had sales of €300m last year and its profits are buoyant. Wirecard can also help data-driven commerce. Its platform makes it possible to collect usable data from checkouts, transactions and customer loyalty programmes and evaluate them for its customers. Last year was the group's most successful year. Revenues in the last five years have tripled and today are €1bn. Earnings rose by a third to €307m and the company is forecasting €400m for year end.

Europe generates more than half of revenues and profits, with Asia-Pacific contributing two-fifths.

Investors have found its share performance is erratic, hitting a yearly low of €38, but has bounced back, trading at an all time high of €89.

Interestingly, the group has attracted the support of a number of institutional heavyweights like Jupiter (UK) and the American specialists T Rowe Price and Citigroup.

The digital payments sector is not what you would call a lonely place. There is a lot of international competition and strong suspicions that consolidation may be overdue. The future could pose interesting challenges for Wirecard and its shareholders.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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